bill huizenga, 2nd district of michigan. i have approached some of our democratic colleagues about this concept. both some of the blue dogs, as well as much more progressive members. it strikes a chord with them as well. i think sort of the nature of washington these days, everybody is looking for the land mines, though. and i -- the political land mines. there are a number of democrats that are intrigued by the concept because they know as well, they hear it from their constituents, that we're not being open and honest and transparent. and people -- i believe genuinely that people on both sides of the aisle are looking for real solutions. so they are intrigued by it. we just need to make sure we continue to push that. >> we will. thank you all for being here. really appreciate your time. senator sessions, thanks for your leadership and all of your senate colleagues. we appreciate it. thank you.

>> thank you. next up live on c-span3, federal reserve chairman ben bernanke testifies on the economic outlook for 2012. yesterday the committee heard from the head of the congressional budget office which forecast unemployment at around 8.9% and slow economic

growth through the rest of the year.

the committee will come to order. all right. thank you, chairman bernanke for coming to our committee today to talk about the state of the economy. you've been here a number of times. we appreciate your time. we know your schedule is tight. we'll proceed quickly so we can get you back on your schedule. nothing is more critical to today' economy than restoring real job and business growth in america. yet for almost three years, the u.s. economy has remained minored in a slow growth high unemployment trap. the president and his party leaders say things are getting better. yet we continue to hear from families and businesses in our

districts who tell us this kind of talk is completely disconnected from reality. the fact is, this administration told a stimulus plan would keep unemployment from ever rising above 8%, that the economy would have grown at 4% last year. in reality, unemployment climbed as high as 10% and today it stands at 8.5%. worse, cbo confirmed just yesterday it is projecting economic growth to remain sluggish and that the unemployment rates might hover near 9% through 2014. so the obvious question is, why did these policies fail. i think when you get out and talk to families and businesses, the answer becomes quite clear. the president's policy has added hundreds of billions to our annual deficits. as a result the explosive growth of our debt created tremendous uncertainty about our fiscal and economic future. when government sews doubt about future tax rates, interest rates and price stability, it undermines the feeling of future

security that businesses and families need in order to plan and invest. this puts a drag on economic growth. there is a monetary side to this uncertainty as well. the fed announced it's going to continue to hold interest rates at extremely low levels through 2014. i think the policy run it is great risk of fueling asset bubbles, destabilizing prices and eventually eroding the value of the dollar. the prospect of all three is adding to uncertainty in holding our economy back in many of our judgments. i fear that normalizing monetary policy when the time comes will be incredibly difficult. not just technically difficult, but politically difficult as well. for instance, i was greatly concerned to hear the fed recently announced it would be willing to accept higher-than-desired inflation in order to focus on the other side of its dual mandate which is promoting unemployment. this is not because unemployment is a lesser concern, it because the fed's tools are limited and can have highly undesirable

unintended consequences. by contrast the fed is uniquely positioned to protect the currency, the value of our money. i would find it very disturbing if that role were to be diminished. the inflation dynamic that can be quick to materialize and painful toer rad cat once it takes hold. for the sake of our economy in particular and the global recovery as a whole, it is vital that we focus on stability and certainty, especially when it comes to the value of the dollar. i firmly believe a course correction here in washington is sorely needed to help us get back on the right track. while it won't be easy, americans have risen to greater challenges and have prevailed in the past. we hope to provide a plan to do that. with that, i yield to tranninging member mr. van holland. >> thank you, mr. chairman. welcome dr. bernanke, we must use all the tools at our disposal to help put people back to work and i comment you and your colleagues at the fed for using various formation of

monetary policy to promote stable prices and higher levels of employment. i do find it troubles at a time when millions of americans are still out of work many of our republican colleagues want to strip the federal reserve of that part of its mandate that focuses on full employment and putting americans back to work. obviously the federal reserve must not waiver in its commitment to price stability but to deprive you of the tools necessary to boost employment would be a big mistake. indeed, without those tools, the economy today would be in much worse shape. dr. bernanke, as you testified previously before this committee, the measures taken by the federal reserve, the politically unpopular but economically necessary t.a.r.p. legislation engineered by the bush administration and the recovery act by the obama administration averted, and i quote what you said earlier, an extraordinarily -- an

extraordinarily severe downturn, perhaps a great depression. indeed we have averted a great depression. it's important to remember that the dayment bush left office, the day president obama was sworn in the economy was collapsing at an evil faster rate than originally thought. the gross domestic product was plummeting at a rate of 8.9%. in other words, negative 8.9% gdp, and we were losing 840,000 jobs every month. three years later, conditions have improved. the economy grew at an annual rate of 2.8% in the last quarter and 3.2 million private sector jobs had been created since march 2010. reports and findings by the congressional budget office confirm your earlier assessments, that the passage of the recovery act coupled with the actions by the federal reserve and others did help end the free fall and have helped begin the climb upward toward

economic growth. indeed, the conditioningal budget office has told us that the recovery act helped save or create up to 3 million jobs in the year 2010 and lowered unemployment by up to 1.4 percentage points in 2011, compared to what it would have been if congress had not acted. that's not my facts. those are not my facts. those are from the congressional budget office. it's clear we were on a huge, fast downhill slide and action taken by the federal reserve, president obama and the congress at the time helped end the economic free fall and begin to turn the corner. still we know that while the economy has improved, million ps of americans still remain out of work. unemployment remains unacceptably high and american families around the country are still hurting. our economy is still very vulnerable to outside shocks, whether it be the japanese tsunami to the brewing european

debt crisis. that is why our first priority has to be nurturing this fragile economy and making sure we do what we can to help small businesses and other businesses help put people back to work. so i commend you, chairman bernanke in articulating in your prepared testimony that in pursuing medium and long-term fiscal sustainability which we absolutely must do, we ought toik care not to slash investments too quickly because those would impede the economic recovery. in fact, some policymakers in europe are coming to this notion a little late. the british economy, for example, contracted by .2% last quarter due in part to the severity of government spending cuts, according to the january 31st article in the "wall street journal." of course, the british model was much heralded just a few years ago by some of our colleagues as an example of how austerity

could work, severe austerity is now coming back to bite them. christine lagarde, director of the imf was quoted by bbc recently saying the imf is not suggesting there should be fiscal consolidation across the board. it went on to point out you need to look at this on a case-by-case basis. ratings agency standard and poorp in a quote explaining the rationale behind their downgrade of nine eurozone nations noted, a budget tear reform process based on fiscal austerity alone risks becoming self defeating as domestic falls in line with consumer's rising concerns about job security and disposable incomes eroding national tax revenues. by the way, also, contributing to long-term deficits. there are reasons -- these are reasons why we should take immediate action to take up the president's job plan which he

presented in september including important investments in our national infrastructure. it's also why we should finish the job with respect to extending the payroll tax cut to 160 million working americans and make sure that unemployment insurance is there for millions of others who are out of work through no fault of their own. dr. bernanke, i apologize to you in advance. the conference committee on the payroll dax cut also begins at 10:00. so i'm going to have to leave before i want to. let me close by saying as we nurture the very fragile economy, we should also take immediate steps to enact a plan to reduce our out-year deficits and debt. we should do it in a stable, predictable and balanced way. the question is not whether we should do that. the question is how we do that, and i believe that bipartisan commission simpson-bowles provide the overall framework to

the approach for doing that, if not every specific recommendation they make. so with that, dr. bernanke, again, thank you and your colleagues for your work. mr. chairman, thank you. >> thank you. chairman bernanke, the floor is yours. >> thank you. >> chir man ryan, ranking member van hollen and other members of the committee, i appreciate this opportunity to discuss my views on economic outlook, monetary policy and the challenges facing federal fiscal policymakers. over the past 2 1/2 years, u.s. economy has been gradually recovering from a deep recession. while conditions have certainly improved over this period, the pace of the recovery has been frustratingly slow. particularly from the perspective of the millions of workers who remain unemployed or underemployment. moreover, this sluggish expansion has left the economy vulnerable to shocks. indeed last year supply chain disruption stemming from the earthquake in japan, a surge in the prices of oil and other

commodities and spillovers from the european debt crisis risked derailing the economy. fortunately over the last few months, spending and job market activity have shown signs of improvement. in projections just released, participants indicated they expected somewhat stronger growth this year than in 2011. the outlook remains uncertain, however, and close monitoring of economic developments will remain necessary. as is often the case, the ability and willingness of households to spend will be an important determinant of the pace of which the economy expands in coming quarters. although real consumer spending rose moderately, households continue to significant headwinds. real household income and well stagnated and access to credit remained tight for many potential borrowers. consumer sentiment has improved from the summer's depressed levels but remains at levels still quite low by historical

standards. household spending will depend in turn heavily on developments in the labor market. over all the squlob situation does appear to have improved mod evidently over the past year. private payroll employment increased by about 160,000 jobs per month in 2011. the unemployment rate fell by about one percentage point and new claims for unemployment insurance declined somewhat. nevertheless, as shown by indicators like the rate of unemployment and the ratio to population, you still have a long way to go before the labor market can be said to be operating normally. particularly troubling is the unusually high level of long-term unemployment. more than 40% of the unemployed have been jobless for more than six months, roughly double the fraction during the economic expansion of the previous decade. uncertain job prospects along with tight mortgage conditions continue to hold back the demand for housing. although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the

affordability of housing, both residential sales and construction remain depressed. a persistent excess supply of vacant homes largely stemming from foreclosures is keeping downward pressure on prices and limiting the demand for new construction. in contrast to the household sector, the business sector has been a relative bright spot in the current recovery. manufacturing production has increased 15% since its trough. capital spending by businesses has expanded briskly over the past two years, driven in part by the need to replace aging equipment and software. moreover many u.s. firms, notably in manufacturing but also in services have benefited from strong demand from foreign markets over the past few years. more recently the pace of growth in business investment has slowed, likely reflecting concerns about both the domestic outlook and developments in europe. however, there are signs that these concerns are abating somewhat. if business confidence continues to improve, u.s. firms should be well positioned to increase both

capital spending and hiring. larger businesses are still able to obtain credit at historically low interest rates and corporate balance sheets are strong. though many smaller businesses continue to face difficulties in obtaining credit, surveys indicate that credit conditions have begun to improve mod evidently for those firms as well. globally economic activity appears to be slowing, restrained in part by spillovers from fiscal and financial developments in europe. the combination of high debt levels and weak growth prospects in a number of european countries has raised significant concerns about their fiscal situations, leading to substantial increases in sovereign borrowing costs, concerns about the health of european banks and associated reductions in confidence in the availability of credit in the euro area. resolving these problems will require a concerted action on the part of european authorities. they are working hard to address their fiscal and financial challenges. nonetheless, risk remain that developments in europe or

elsewhere may unfold favorably and could worsen economic prospects here at home. we are in frequent contact with european authorities and we will continue to monitor the situation closely and take every available step to protect the u.s. financial system and the economy. let me turn now to a discussion of inflation. as we had anticipated, overall consumer price inflation moderated considerably over the course of 2011. in the first half of the year, a surge in the prices of gasoline and food along with some pass-through of higher prices to other goods and services pushed consumer inflation higher. around the same time supply disruptions associated with the disaster in japan put upward pressure on motor vehicle prices. as expected, however, the i'm tess from these influences faded in the second half of the year leading inflation to decline from an annual rate of about 3.5% in the first half of 2011 to about 1.5% in the second half, close to the average pace in the preceding two years. in an environment of well

anchored inflation expectations, more stable commodity prices and substantial slack in labor and product markets we expect inflation to remain subdued. against that backdrop the fom xrfrnlths decided last week to maintain the highly accommodative stance of monetary policy. the committee decided to continue the program to extend the average maturity of securities holdings to maintain existing policy on its portfolio of securities and keep the target range as 0 to 1.4%. as part of our on going effort to increase the transparency and predictability of monetary policy, following its january meeting the fomc release add statement intended to provide greater clarity about the committee's longer term goals and policy strategy. the statement begins by emphasizing the federal reserve's firm commitment to pursue congressional mandate to

foster stable prices and maximum employment. to clarify how it seems to achieve those objectives, the fomc stated that inflation at the rate of 2% as measured by the annual change in the price index or personal consumption expenditures is most consistent over the longer run with the federal reserve statutory mandate, and it indicated that the central tendency of fomc participants' current estimates of the longer run normal run of unemployment is between a 5.2 and 6%. the statement moated knees statutory objectives are generally complimentary, but when they are not, the committee will take a balanced approach to return both inflation and employment to their desired levels. in my remaining remarks i'd like to briefly discuss the fiscal challenges faces your committee and the country. the federal budget deficit widened with the onset of the recent recession and averaged around 9% of gdp over the past three fiscal years.

this exceptional increase in the deficit has reflected the cyclical response of revenues and spending to a weak economy as well as fiscal actions taken to ease the recession and aid the recovery. as the economy continues to expand and stimulus policies are phased out, the budget deficit should narrow over the next few years. unfortunately, even after economic conditions return to normal, the nation will still face a sizable structural budget gap if current budget policies continue. using information from the recent budget outlook by the cbo, one can construct a projection for the federal deficit assuming most expiring tax provisions are extended and the medicare physician payment rates are held at their current level. undear these assumptions the blt self sit would be more than 4% of gdp in 2017 assuming the economy is then close to full employment. of even greater concern is longer run projections based on plausible assumptions about the evolution of the economy and the

budget under current policies show the structural budget gap increasing significantly further over time and the ratio rising rapidly. this dynamic is clearly unsustainable. these structural imbalances did not emerge overnight. to a significant extent they are the result of an aging population and especially fast-rising health care costs both have been predicted for decades. notably the cbo projects net federal out lays for health care entitlements, which were about 5% of gdp in 2011 could rise to 9% of gdp by 2035. we have been warned of such developments for many years, the time when projections become reality is coming closer. having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences. over the longer term the current trajectory threatens to crowd out private capital formation and reduce productivity growth. to the extent increasing debt is

financed by borrowing from abroad, a growing share of our u future income would be devoted to interest payments on foreign held federal debt. high levels of debt impair the ability of policymakers to respond effectively to economic shocks and other adverse events. even the prospected unsustainable deaf sis has costs including an increased possibility of a sudden fiscal crisis. as we've seen in a number of countries interest rates can soar quickly if investors lose confidence to manage fiscal policy. although historical experience and economic theory do in the indicate the exact threshold at which the perceived risks would increase markedly. we can be sure without action we'll move ever closer to that point. to achieve economic and financial stability u.s. fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or preferably declining over time. attaining this goal should be a

top priority. even as fiscal policymakers address the urgent issue of fiscal sustainability, they should take care not to unnecessarily impede the current economic recovery. fortunately the two goals of achieving long-term fiscal sustainability and avoiding additional head wins are fully compatible. on the one hand a more robust recovery lead to lower deficits and debt in coming years. on the other hand, a plan that clearly puts and credibly puts fiscal policy on a path to sustainability could keep longer term interest rates low thereby supporting improve economic performance today. fiscal policymakers can also promote stronger economic performance in the medium term through the careful design of tax spent policies and spending programs. to the fullest extent possible our policies should increase the incentives to work and save, encourage investments in the skills of our workforce,

stimulate private capital formation, promote research and development and provide necessary public infrastructure. although we cannot expect our economy to grow its way out of our fiscal imbalances, a more productive economy will ease the tradeoffs we face and increase the likelihood with leave a healthier economy to our children and grandchildren. thank you, mr. chairman. >> thank you. we agree completely with the last part of your statement which is if we don't get our fiscal house in order, it's going to get ugly pretty fast. also i want to salute you for having more trance parnlt see on the operation of the fastball. the latest fomc statement clearly was an attempt to put your policy on the table and let the country see it. but it's in that policy i have a couple of questions. early on you put out an nation target rate of 2%. that puts more certainly more clarity.

at the end of the statement, i'll quote it, in seth monetary policy the committee seeks to deviations of employment from the is committee's assessment. under circumstances in which the committee judges that objectives are not come plichltry it follows a balanced approach. taking into account the magnitude of deviations and time horizons over which employment and inflation are projected to return to levels judged consistent with its mandates. here is what i don't get. it seems as if you're moving away from an inflation target with that kind of a statement and at best it's ambiguous. at worse it says that the deviation is higher on unemployment, which clearly it is, than it is on inflation, it follows my interpretation that the fed is willing to accept higher levels of inflation than your preferred rate in order to chase your employment mandate. is that not what we should interpret out of this? >> no, mr. chairman.

i wouldn't say that's correct. 2% is our definition of price stability. as part of our man date we want to achieve that 2% inflation rate in the medium term. obviously monetary policy works with a lack. we can't achieve it every day, every week, but over a period of time we want to move inflation always back towards 2%. we are not seeking -- we will not actively seek to raisin nation or to move away from the target. we're always trying to bring inflation back to the target. the only sense in which there's a balance, of course, is that -- in looking at the two sides of the mandate, the rate of speed, if aggressiveness may depend on the balance in the two objectives. we're always trying to return both objectives back to their mandate. we're not seeking higher inflation. we do not want higher inflation and we or not tolerating higher inflation. >> the core mission of every

central bank is stable prices. it's ooh necessary precondition for economic growth and, therefore, then full employment, at least in some of our judgment. you and i have talked about mandates single verses double a lot. if we're to say we or not going to look at the deviations between the two, and if we're saying that we think full employment is 5.2% to 6%. we're clearly way above that. at your pce we're closer to where your inflation target is. i don't know how other else to interpret this that the result of this balanced approach is that higher than preferred inflation will be tolerated. not that it's desired but that it will be tolerated. i'll simply quote paul voelker who said in the late 1970s, central bankers willing to tolerate a little more inflation usually end up getting a whole lot more than they expected. my concern is that this appears

less to be an inflation targeting statement than an inflation equivocation statement because we're now targeting deviations. and that's the concern. when this statement was released, we saw a build-up of commodity prices, even though i think you said fairly recently that demand is down. therefore, commodity prices should be low. so my basic question is, if this is our interpretation and we have a spike in commodity prices that occurred after the statement released, is that not the market's interpretation of this statement? >> mr. chairman, first of all, as we say, the two sides of are generally complimentary. we agree that low inflation, low stable inflation is good for the economy and good for growth, good for employment. we think most of the time that there's a complimentary relationship between those two. our actual -- the actual